Ashcroft v Barnsdale
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Hodge QC |
| Judgment Date | 30 July 2010 |
| Neutral Citation | [2010] EWHC 1948 (Ch) |
| Docket Number | Case No: HC10C01287 |
| Court | Chancery Division |
| Date | 30 July 2010 |
[2010] EWHC 1948 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: His Honour Judge Hodge QC
Sitting as a Judge of The High Court
Case No: HC10C01287
Mr Thomas Entwistle (instructed by Squire, Sanders & Dempsey) for the Claimant
The Defendants did not contest the claim and were not represented
Hearing date: Thursday 22 nd July 2010
His Honour Judge Hodge QC:
Introduction: Relief and Parties
By a claim form issued under Part 8 of the Civil Procedure Rules on 21 st May 2010 the Claimant seeks to rectify a deed of family arrangement varying the will of his late wife, Charlotte Mary Ashcroft, who died on 14 th April 2006 aged 60. The 1 st Defendant is the brother of the deceased. The 2 nd and 3 rd Defendants (who are both over 21 years of age) are the deceased's only children. The Claimant and the 1 st Defendant are the two executors of the deceased's estate. The only party who appeared before me was the Claimant, represented by Mr Thomas Entwistle of counsel. The 2 nd and 3 rd Defendants have both filed acknowledgments of service indicating that they do not intend to contest the claim. I was told that the 1 st Defendant (who has no beneficial interest in the deceased's estate, either under the will as originally executed or by virtue of the deed of variation) has signed a similar acknowledgment of service, but that this has not yet been received by the Claimant's solicitors; nor has it been filed at Court. I direct that (subject to any further direction) my order shall not be perfected unless and until an acknowledgment of service is received from the 1 st Defendant indicating that he, too, does not intend to contest the claim.
Factual background
The only substantive evidence before the court comprises a witness statement from the Claimant dated 10 th July 2010, together with a bundle of relevant copy documents from the files of the estate's accountants (Butler & Co of Alresford, Hampshire) and its former solicitors (Kidd Rapinet of Farnham, Surrey) marked Exhibit ‘MAA 1’. By her last Will dated 6 th May 1980 the deceased appointed the Claimant and the 1 st Defendant to be her executors and trustees. By clause 3 of the Will, the deceased gave to the Claimant absolutely “free of all duty and taxes payable at my death (a) the sum of TEN THOUSAND POUNDS (b) All my freehold property situated in Surrey or Hampshire and occupied or farmed by me or me and my husband.” By clause 4 the deceased gave the residue of her estate to her trustees upon the usual trusts for sale and conversion. By clause 5 of the Will the trustees were directed to stand possessed of the net sale proceeds and the deceased's ready money (after payment thereout of her funeral and testamentary expenses and debts, legacies and all capital transfer tax payable on her death) upon trust (in the events which happened) for her two children absolutely. Clause 6 of the Will extended the trustees’ powers of investment.
The deceased's net estate was worth some £1,700,000. The principal assets were farmland at Dockenfield, Surrey worth some £585,000; shares and other investments worth some £995,000; and a share in a farming business worth some £80,000. Under the terms of the Will as executed, the Claimant was to receive £10,000 and the farmland whilst the residue passed to the children. This was inefficient for inheritance tax purposes because the farmland and the share in the farming business attracted agricultural property relief at 100%; but since the farmland passed to the Claimant, and so was subject to the surviving spouse exemption, the agricultural property relief was not utilised. Accordingly, the estate's accountants suggested drawing up a deed of variation by which the Claimant was to exchange the farmland for part of the share portfolio. On 20 th June 2006 a meeting took place attended by the Claimant, his two children (the 2 nd and 3 rd Defendants), Mr Ian Fielder and Ms Cherry Dowsett (of Butler & Co) and Mr Gary Stones (of Kidd Rapinet). Apparently no attendance note was made of that meeting; but its subject matter had been anticipated by letters from Butler & Co to the Claimant dated 1 st and 6 th June 2006. According to paragraph 6 of the Claimant's witness statement, at the meeting it was agreed that a deed of variation should be prepared by which the farmland should be exchanged for an equivalent (in terms of monetary value) part of the share portfolio. The Claimant was to be treated as the residuary beneficiary so that the surviving spouse exemption should apply to the whole estate with the exception of that part of the share portfolio which was to be given to the children and the farmland (which, because of agricultural property relief, was not subject to inheritance tax in any event).
A deed of variation was prepared by Mr Stones and was completed on 24 th August 2006. The parties were (1) the Claimant and the First Defendant as executors and (2) the Second and Third Defendants as the residuary legatees. Clause 1 recited that the residuary legatees desired and intended to vary the dispositions of the will in the manner set out in the Deed. Clause 2 (headed “Variation of Will”) provided that the testator was to be deemed to have deleted clauses 3,4 and 6 from the Will and should be deemed to have inserted the following clauses in the Will: “2.1(a) I GIVE the sum of £410,000,00 FOUR HUNDRED AND TEN THOUSAND POUNDS to such of my children as shall be living at the date of my death and if more than one in equal shares 2.1(b) I GIVE to my children as shall be living at the date of my death my agricultural farmland known as Great Holt Farm Dockenfield Farnham Surrey and if more than one in equal shares 3 I GIVE DEVISE and BEQUEATH all my estate both realty and personalty whatsoever and wheresoever not otherwise disposed of by this my said Will to my husband David Arnold Ashcroft”. There was no clause 3 of the Deed. By Clause 4 (headed “Executor's Undertaking”) the executors undertook to administer the estate in accordance with the variation made by the Deed. Clause 5 (headed “Reading back statement”) gave notice to the Board of Inland Revenue in accordance with section 142 (2) of the Inheritance Tax Act 1984 and section 62 (7) of the Taxation of Chargeable Gains Act 1992.
The Deed of Variation is defective in several respects. I have already noted that it contains no clause 3 (the draftsman having apparently confused the substituted clause 3 of the Will with clause 3 of the Deed). The reference to the deletion of clauses 3, 4 and 6 of the Will was erroneous: it was clause 5 (which contained the residuary gift) which required deletion rather than clause 6. Further, as Butler & Co noted in a letter to Kidd Rapinet of 18 th September 2006, the Deed left the sum of £410,000 to the children although the June 2006 correspondence had suggested that this amount should be £410,772. But a more significant defect was soon to emerge. Following the submission of the Inheritance Tax Account (Form IHT 200) to the Inland Revenue, together with payment of the anticipated tax liability of some £50,000, on 20 th December 2006 HM Revenue & Customs (“HMRC”) wrote to Kidd Rapinet enclosing a calculation showing some £33,000 to be due by way of additional inheritance tax. This arose because the gift of £410,000 to the children under the Will as varied was (by section 211 of the Inheritance Tax Act 1984) to be treated as free of tax and therefore had to be grossed up under section 38. Since, under the Deed of Variation, the Claimant was to be treated as the residuary beneficiary, it fell to him to bear the incidence of the inheritance tax. As the Claimant explains at paragraph 9 of his witness statement: “This was not what was agreed between the children and me and not what we had thought was the deed's effect. Under Charlotte's will the children, as the residuary beneficiaries, had borne the IHT which was payable. Our intention in entering into the deed was not that I would assume the IHT liability. If this aspect of the deed's effect had been explained to me I would not have executed it but would have asked for it to be amended so as to ensure that the children continued to bear the IHT liability. I am advised that this could have been easily achieved by inserting the words ‘subject to inheritance tax’ in clause 2.1(a) of the deed.” However, the Claimant was advised that HMRC's view of the Deed of Variation was correct; and he therefore paid the inheritance tax which was said to be due.
Initially, the parties to the Deed of Variation sought to correct the mistake by executing a Deed of Rectification dated 20 th September 2007. This included a recital that: “The intention of the parties to the Variation was (a) to delete clauses 3 and 5 of the Will; (b) to replace the specific devise in favour of the husband of the Testator with a gift of residue to him of approximately equal value; (c) to replace the gift of residue to the Residuary Legatees with a specific devise and pecuniary legacy in their favour of an amount approximately equal to the previous residuary gift having regard to the burden of inheritance tax which was payable out of residue; (d) that the specific devise and pecuniary legacy under clause 2 of the Variation should bear their own inheritance tax such that the husband of the Testator should receive approximately the same value as he would have received had the provisions of the Will remained unaltered and that the Residuary Legatees should receive approximately the same values as they would have received under the terms of the Will disregarding any adjustment in the inheritance tax liability as result of the Variation.”
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